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OLIGOPOLISTIC BEHAVIOR: Oligopolistic industries are nothing if not diverse. Some sell identical products, others differentiated products. Some have three or four firms of nearly equal size, others have one large dominate firm (a clear industry leader) and a handful of smaller firms (that follow the leader). Whatever products they may sell, and however they may be organized, oligopolistic industries share several behavioral tendencies, including (1) interdependence, (2) rigid prices, (3) nonprice competition, (4) mergers, and (5) collusion. In other words, each oligopolistic firm keeps a close eye on the decisions made by other firms in the industry (interdependence), are reluctant to change prices (rigid prices), but instead try to attract the competitors customers using incentives other than prices (nonprice competition), and when they get tired of competing with their competitors they are inclined to cooperate either legally (mergers) or illegally (collusion).
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                           INFLEXIBLE PRICES: The proposition that some prices adjust slowly in response to market shortages or surpluses. This condition is most important for macroeconomic activity in the short run and short-run aggregate market analysis. In particular, inflexible prices (also termed rigid prices or sticky prices) are a key reason underlying the positive slope of the short-run aggregate supply curve. Prices tend to be the most inflexible in resource markets, especially labor markets, and the least inflexible in financial markets, with product markets falling between the two. Price inflexibility prevents resource markets from eliminating shortages and surpluses and achieving equilibrium. In other words, wages do not decline even when unemployment rises. Inflexible resource prices, especially wages, help to explain the positive slope of the short-run aggregate supply curve when the price level declines. In particular, when the aggregate economy is faced with falling aggregate demand, resource employment and real production tend to fall first, bearing the brunt of the reduction, while resource prices remain relatively unchanged.Prices, especially resource prices, tend to be inflexible for five reasons. - First, producers often have long-term, multi-year contracts with resource suppliers that specify resource prices. The best example is collective bargaining agreements between firms and labor unions. For most employers, as well as the labor unions, it is often easier to lay off a few workers temporarily than it is to renegotiate an agreement that contains lower wages.
- Second, workers tend to view wages as an indication of intrinsic self-worth. If an employer should try to reduce wages, workers are inclined to view this as a personal insult. These workers might then opt for temporary unemployment, awaiting to be re-hired or seeking other jobs AT EXISTING WAGES, rather than continuing their current work at lower wages.
- Third, the processes involved with employing and paying workers, especially such things as payroll systems, are often guided by inertia. Once wages are established (that is, entered into computer databases) explicit actions must be taken to change them. Because these actions are not costless, firms need a good reason to make changes. In other words, firms employing thousands of workers are unlikely to make small daily, weekly, or even monthly changes in wage rates.
- Fourth, firms might actually opt to reduce employment rather than wages as a means of getting rid of the least productive workers. In other words, the firms can use a decline in sales and production as an opportunity to "clean house." Once done, the firm ends up with a workforce that is, on average, more productive and more efficient. For example, a firm with ten employees that needs to cut wage cost by 10 percent might be inclined to fire one worker, the least productive, rather than cutting wages for all ten workers.
- Fifth, many firms, especially small ones, are price takers in resource markets. They have NO control over the resource prices set by the market. Should they find it necessary to cut wage cost, their ONLY option is to reduce employment and production.
 Recommended Citation:INFLEXIBLE PRICES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: February 11, 2025]. Check Out These Related Terms... | | | | | Or For A Little Background... | | | | | | | | | And For Further Study... | | | | | | | | | | | | |
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Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors looking to buy either several magazines on computer software or a T-shirt commemorating the second moon landing. Be on the lookout for strangers with large satchels of used undergarments. Your Complete Scope
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In the Middle Ages, pepper was used for bartering, and it was often more valuable and stable in value than gold.
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